Neil Barofsky: Credit ratings for banks now include assurance of government bailouts

In other words, they can gamble and do anything they like and the banks know they will be bailed out. Even worse, everyone including the credit rating agencies know it. This is a very dangerous and expensive problem that has been created by the Bush/Paulson team. We went from “too big to fail” to even larger without any questions. Remember that it was the financial industry who wanted extreme capitalism so why shouldn’t they learn to live with the end result? That means when they blow it, they lose every last cent. No bailouts. No lifestyle help by middle class taxpayers. Gamble and lose means you gamble and lose. Period. It’s unbelievable that the Obama administration has only continued this policy rather than delivering real reform. Not a single damned lesson was learned and that is just sad. NPR:

INSKEEP: Let me make sure I understand what you’re saying. You’re saying that credit rating agencies and investors, when they look at the risk of investing in a bank, they say, well, they can do whatever they want because the government will bail them out. That’s what you think.

Mr. BAROFSKY: Exactly. And it’s not just what I think. Recently, just this past month, S&P;, one of the largest of the rating agencies, did something remarkable. They said that they’re intending to change their rating methodology to make it a permanent assumption that the government will bailout (technical difficulties) the largest institutions, give those banks higher ratings. Which means they’re going to be able to borrow money more cheaply. They’re going to be able to access credit and capital and debt more easily.

And they say this even with respect the deregulatory reform and the Dodd-Frank Act that Congress has put in place, that they still believe the United States, as a government, is one that is moderately high, that they’re going to bailout a systemically significant or big bank.

Chris in Paris
An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.